Cisco's Chambers: We Took A Pass On Skype

Cisco had its shot at acquiring Skype long before Microsoft snapped up Skype last year but, according to Cisco Chairman and CEO John Chambers, the networking titan just couldn't risk angering its all-important service provider customers and partners with that kind of deal.

"I can say it now: We had a chance to make that acquisition a very long time ago, and we felt that it would be difficult for our service provider customers to both understand and to benefit from," Chambers told a virtual roundtable of trade journalists this week, as reported by Light Reading and several other news outlets.

Microsoft's $8.5 billion acquisition of Skype has been a touchy subject for Cisco, which last week said it had appealed the European Commission's approval of the deal on grounds that Skype's platform doesn't interoperate with other vendors' video communication systems and would be potentially bad for customers.

Cisco isn't seeking to block the deal so much as to get European regulators to put conditions on it, Cisco's top video executive, Marthin De Beer, said last week.

Chambers told reporters this week that the European Commission put Cisco through its paces over open standards during its own $3.3 billion acquisition of Tandberg -- a move that vaulted Cisco to the No. 1 position in worldwide market share for enterprise videoconferencing. At the time, Microsoft was among the parties urging the European Commission to put conditions on Cisco, Chambers said.

Cisco and Microsoft are longtime strategic partners. Just this week, the companies confirmed a new version of the FlexPod converged infrastructure architecture that uses Cisco networking and servers, NetApp storage and Microsoft virtualization technology.

But they also compete head-to-head in the increasingly more cutthroat collaboration space, where Microsoft has positioned its UC platform, Lync, as a formidable competitor to big guns Cisco and Avaya as well as other established UC players, from Siemens Enterprise Communications to ShoreTel.

Microsoft's acquisition of Skype was approved by the European Commission last fall, and Skype officially became a Microsoft business unit on Oct. 13. Microsoft has been cagey about how exactly it will integrate the popular Skype service, but Peter Klein, Microsoft CFO, said during an investor conference last week that Microsoft and Skype engineers are working to leverage Skype across a range of Microsoft products.

"The value of communication is having the most number of endpoints and having the most complete set of experiences," Klein said. "Skype extends that across all of our assets, whether it's with Lync in the enterprise, or with Xbox Live. It's something that really ties together all of our devices."

UC analysts see Microsoft's positioning with Skype as potentially threatening to Cisco.

"I think this is signaling a fear factor for [Cisco] in that if Microsoft is the first to figure out how to take advantage of what Skype has -- eBay couldn't do it, Avaya couldn't do it -- the fit between those two companies could start to make an awful lot of sense to leverage that huge Skype community," said Jon Arnold, principal of J. Arnold & Associates, during a UCStrategies podcast this week featuring several well-known UC analysts. "When they look at those hundreds of millions of potential endpoints that Skype could enable with video, and if they could keep that proprietary, that's going to shut Cisco out of that space."

Some of the video assets Cisco developed and acquired with Tandberg give Cisco access to desktop video, but the desktop is where Microsoft shines -- and where the potential threat lies, Arnold said.

"The money in [video] for [Cisco] is in the big systems, whereas with Microsoft it's the desktop," Arnold said. "And if Skype can leverage more momentum back to the desktop to where video is going to get the most take-up, that's great news for Microsoft, but it's bad news for Cisco."

Marty Parker, co-founder and principal of UniComm Consulting and co-founder of UCStrategies, said during the podcast that when Microsoft finds a way to tie Skype to Office 365, its cloud-based application suite, the Skype acquisition will be that much more powerful.

"They really end up with a nice suite of capabilities there, while Cisco is still trying to compete in that way," Parker said. "[Cisco] abandoned the e-mail pursuit and some other pieces. But Cisco is trying to build WebEx, along with their Jabber acquisition, into a competitor to these tools. And they'll have a long way to go."